ZHAW: An encouraging first quarter 2013 for funds of hedge funds

Opalesque Industry Update - Funds of hedge funds (FoHF) in Switzerland closed the first quarter on an encouraging note, and the HFRI Fund of Funds Composite Index gained 3.3% in the period under review. As a result, the last three quarters ended positively. So far there is no indication for any setback in Q2 2013 either: April was the sixth consecutive positive month, and global Funds of Hedge Funds (up 1.1%) even outperformed global Single Hedge Funds (HFRI Fund Weighted Composite Index gained 0.7% over the same period of time).

In the first quarter 2013, rising equity markets and growing investor risk tolerance have had a positive impact on the market sentiment. The hedge fund industry was able to take advantage of the risk-on environment. As a result, the HFRI Fund of Funds Composite Index gained 3.3%. The 17-factor model developed by ZHAW/hedgegate indicates that once more the positive performance was to a large extent based on the convincing momentum in equity markets. The MSCI World Index, up 6.9% in Q1 2013, continued to outperform the MSCI Emerging Markets Index. The regional pattern was far from homogeneous: whereas Japanese and US stocks reported double-digit returns, in Europe the development was rather mixed. Commodities continued to disappoint somewhat as well, following an already weak performance last year, exerted by declining raw material prices.

These performance patterns are also mirrored in the development of hedge fund returns: Based on first-quarter returns, the list of the top FoHF registered on hedgegate is dominated by funds with a multi-strategy, Asia or macro approach. Encouragingly, only a few funds reported a marginally negative performance.

Global hedge fund AuM with new record in Q1 2013
With a net inflow of USD 15.2 billion in Q1 2013, the hedge fund industry has attracted nearly half as much capital as in the full year 2012. As a result, global hedge fund assets have reached USD 2,375 billion. On the other hand, the increase of worldwide FoHF assets to USD 650 billion was purely performance-driven, with a similar development in the Swiss FoHF industry.

Outlook
When comparing the first quarter 2013 with Q1 2012, there are amazing similarities. However, whereas the development in Q2 2012 was not satisfactory, so far there is no indication for a setback in Q2 2013. April was the sixth consecutive positive month, and global Funds of Hedge Funds (up 1.1%) even outperformed global Single Hedge Funds (HFRI Fund Weighted Composite Index gained 0.7% over the same period of time). So far the “sell in May and go away” exchange rule has not proved true.